Section 938T | Tax capacity assumption

(1)This section applies for the purpose of determining whether a scheme will, or might, secure a relevant tax advantage.

(2)The economic profits and losses made by the company over the scheme period must be calculated on the assumption that the company—

(a)obtains the full tax benefit of any loss made by the company in relation to a loan relationship or a derivative contract during the period, and

(b)incurs the full tax cost of any profit made by the company in relation to a loan relationship or a derivative contract during the period.

(3)The “full tax benefit” of a loss is the reduction in the liability of the company to corporation tax that would result if—

(a)the loss were brought into account as a debit or as a reduction in a credit for the purposes of Part 5 or 7 of CTA 2009, and

(b)the company's profits chargeable to corporation tax, disregarding the loss, were equal to the debit (or the reduction in the credit) determined by reference to the loss.

(4)The “full tax cost” of a profit is the increase in the liability of the company to corporation tax that would result if—

(a)the profit were brought into account as a credit or as a reduction in a debit for the purposes of Part 5 or 7 of CTA 2009, and

(b)the company's profits chargeable to corporation tax, disregarding the profit, were nil.